Story from Bloomberg
Broadcom Corp., the maker of chips for wireless headsets and TVs, made an unsolicited $764 million offer for Emulex Corp. after an earlier approach was rejected by the provider of semiconductors for data centers.
Broadcom said today that it’s offering $9.25 a share in cash, 40 percent more than Emulex’s closing price yesterday. The purchase, which would add to earnings by 2010, will be funded with cash on hand, Broadcom said.Emulex is an attractive target because its technology for transporting information from data centers to storage systems is fast, reliable and hard to replicate, said Harsh Kumar, an analyst at Morgan Keegan Inc. Emulex shares rose above the offer as investors bet Broadcom may have to raise its bid. Stocks of other data center component makers also advanced on speculation such a deal will fuel consolidation. This is big news for data and colocation centers throughout the country, such as:
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“Broadcom has tried for years to get into this space,” said Kumar, who rates Emulex “outperform” and doesn’t own the shares. “Everyone wins.”
Emulex added $3.09, or 47 percent, to $9.70 at 4:01 p.m. in New York Stock Exchange composite trading. Broadcom, based in Irvine, California, fell $1.27, or 5.8 percent, to $20.52 on the Nasdaq Stock Market.
Emulex’s board is considering the offer, the company said today in a statement. It is being advised by Goldman Sachs Group Inc. and law firm Gibson, Dunn and Crutcher LLP.
Poison Pill
The deal may make QLogic Corp., an Emulex rival, attractive to bidders as well, Kumar said. Cisco Systems Inc. and Juniper Networks Inc. may want to buy the Aliso Viejo, California-based company to enhance their own products for data centers, he said.
QLogic gained as much as 19 percent on the Nasdaq, while Mellanox Technologies Ltd., a maker of chip-based products that help servers and storage systems communicate, added as much as 14 percent.Broadcom sued Emulex to bar the company from taking any action to defeat its bid. Broadcom said Emulex rejected an offer to hold talks in January and adopted a “poison pill” provision to thwart bids. Poison pills release a large number of shares in the event of an offer, increasing the price a buyer must pay.
“A lot of times, that’s a tactic to get a higher offer price, so it may be related to that rather than to prevent the takeover entirely,” Steve Smigie, an analyst at Raymond James & Associates, said in an interview on Bloomberg TV. Also, “Emulex can argue they are coming off a severe trough.”
Emulex shares lost almost half their value in the past year before today as the recession ate into sales, leading to three straight quarters of declines.
‘Always Other Options’
“There’s every opportunity for this to be a friendly transaction,” Broadcom Chief Executive Officer Scott McGregor said in an interview. “There are always other options. Our priority is to close with Emulex.”
Katherine Lane, an Emulex spokeswoman, said the company doesn’t comment beyond its statement. Sonal Dave, a spokeswoman for QLogic, said the company didn’t immediately have a comment.
Banc of America Securities is providing financial advice to Broadcom, while Skadden, Arps, Slate, Meagher & Flom LLP is the legal adviser.
Broadcom aims to expand its range of products to lure customers as the recession forces other clients to cancel or delay orders. Emulex’s products would make Broadcom’s offerings more complete, cutting the number of suppliers clients buy from.
Slumping Sales
Broadcom posted its second straight loss today after sales fell and it spent more trying to break into the mobile-phone market. The loss for the quarter ended March 31 was $91.9 million, or 19 cents a share, after profit of $74.3 million, or 14 cents, a year ago. Sales slid 17 percent to $853.4 million.
Analysts predicted a loss of 24 cents on sales of $848.3 million, according to a Bloomberg survey. The company said sales will continue to decline this quarter, falling to as much as $975 million from $1.2 billion a year earlier.
Demand for chips is tumbling as electronics makers cut orders to draw down stockpiles of unused parts. Chipmakers say that while companies have now stopped reducing inventory and order declines have slowed, the economy remains sluggish.
Emulex’s profit fell 40 percent to $10.5 million in the quarter ended Dec. 28, with the company citing the recession and a “deteriorated sales environment.” Revenue slid 17 percent to $108.7 million.
